Health Savings Accounts are helping

July 31, 2012

Free Market Foundation

Since 2001, private health insurance premiums in the U.S. have risen 73 per cent, causing some businesses to drop health care coverage and others to simply pass the costs on to workers by raising co-payments and premiums. But what is driving this run-up in health insurance costs, asks Allan Hubbard, director of the National Economic Council.

Health care is expensive because people consume it as if it were free, but to control these costs, consumers need an incentive to spend money wisely. This can be done by encouraging the purchase of high-deductible policies and providing the same tax benefits for out-of-pocket health spending as employer-provided insurance, says Hubbard:

The overall cost to the consumer will be no greater than it is now and, in most cases, significantly lower.

The U.S. president has proposed a package of reforms that will spur such changes by building on the success of consumer-directed Health Savings Accounts (HSAs) which allow people to save money tax-free to pay their out-of-pocket health costs and the insurance policies that go with them.

Since 2003, HSA enrolment has grown rapidly, with more than three million people now contributing to them.

The accounts are also a good deal for American families; catastrophic policies have affordable premiums that bring health insurance into reach for lower-income families and the low premiums compensate for most, if not all, of the policies’ higher deductibles.

HSAs are also an attractive option for employers that might not otherwise provide health insurance; with premiums rising, only 60 per cent of companies offered their workers health insurance in 2005, compared with 69 per cent in 2000.

Furthermore, HSAs will help unleash consumer power, give consumers more choices, promote competition and increasing value and enable consumers and doctors to make health care decisions that are right for them, says Hubbard.

Source: Allan B. Hubbard, The Health of a Nation, New York Times, April 3, 2006.

For text (subscription required): http://www.nytimes.com/2006/04/03/opinion/03hubbard.html

For more on Health: http://www.ncpa.org/iss/hea/

FMF Policy Bulletin/ 11 April 2006